Similarity essayTheranos: Whistleblowing & Corporate Governance Theranos Fraud: Whistleblowing & Corporate Governance
1. How do you relate with the alternatives Tyler had to deal with in deciding whether to disclose the deficiencies at Theranos? How are your feelings similar and dissimilar to Tyler's?
I relate with the alternatives Tyler had to deal with in deciding whether to disclose the deficiencies at Theranos through the unknown outcomes and dilemma that occurs when choosing a whistleblowing option. Kaiser (2019), notes that “whistleblowing can exhibit one’s worst or best traits”. Unfortunately, the whistleblower doesn't know which outcomes to expect. There is also a challenge in preparing for the worst such as unemployment and legal cases from the institution. It is hard to take action with high chances of suffering, but the community will enjoy the exposed fraud. Employees are constantly under pressure to save the community from deception and lies, but their labor and life are at risk. My experience is similar to Tyler's, where a whistleblower does not know that the state law protects such a role to avoid negative impacts. Tyler discovered that “the SEC and government is under strict rules to protect someone’s privacy” (Primeaux, 2019). Most employees are not aware of whistleblower protection leading to a struggle in choosing between disclosing deficiencies in an organization. However, under the United States Department of Labor (n.d.), no employer can “fire or come against an employee because he has put in a complaint.” As a result, lack of awareness about the protection creates a dilemma towards a whistleblowing role.
My feelings of fear hurt, and caution is similar to Tyler's due to the nature of whistleblowing that can affect employment, and personal life. Whistleblowing goes against the wish and agreement of an employer, creating a series of thoughts, pain, and feelings related to fear and the need to be safe. Tyler “was afraid of Theranos' wrath if he goes against the nondisclosure and confidentiality agreements” (Primeaux, 2019). As Tyler, I would have also hesitated. Tyler felt the burden of reporting the company due to the imagined loss that it could cause as revealed by the delayed whistleblowing.
2. Assuming you recently joined a new company and found the employer was misleading others about company success, how might you react? Why?
Theranos' fraud is a significant case to all employees in a company that misleads the public about their products and success. The cases explore the role of a whistleblower and related protection that has been a phenomenon for some time. Tyler is an eye-opener that employees can remain committed to exposing such frauds without fear or negative outcomes.
I would expose fraud in a company misleading about its success to the public through the US Department of Labor. Tyler's case has taught me that I am responsible to the public in ensuring their interests as an employee. Kaiser (2019), states that whistleblowing is an ideal type of public service. Theranos' case proves the point by showing the significant suffering the public can go through in an undisclosed fraud. For example, Tyler states that syphilis tests showed that Theranos' equipment had variations with “large enough difference to change a diagnosis” (Primeaux, 2019). Thus, a patient might test negative for syphilis through Theranos' equipment leading to delayed treatment and spreading the infections to many other people in a community. Such fraud is an unethical practice following disrespect to human dignity and harm. Employees are the best people to expose such issues and save the public as responsible society members.
However, my approach to exposing the fraud would differ from Tyler’s because I have learned that government protects whistleblowers who follow the appropriate course. According to 18 US Code § 1038 (n.d.), “whoever engages in any conduct with intent to convey false or misleading information is considered a criminal violation” (para. 1). Following the code, the government recognizes whistleblowing role. In addition, the Occupational Safety and Health Act (OSH Act) (n.d.) provides that an employer cannot “discriminate against any worker because such he has filed a complaint or instituted or caused to be instituted any proceeding” (para. 1) OSH provides protective measures to employees, such as remedies for retaliation, making whistleblowing a possible role without fear or hurt. Therefore, I would file a complaint with OSH to expose such a company misleading the public since there would be no fear and retaliation as Tyler experienced.
3. Do you think other nonmanagers knew that the blood testing protocol at Theranos did not work? If so, why didn't they speak up?
Theranos' case is also significant to learn about barriers to whistleblowing which faced other nonmanagers, making them silent and watch as the fraud continues. Apart from Tyler, other nonmanagers knew that the blood testing protocol at Theranos did not work. Nonmanager employees are responsible for the groundwork, including testing the variations in blood testing equipment. At Theranos, Tyler was among the “assay validation team” (Primeaux, 2019), showing engagement of other workers in the discovery of fraud at the company. The team would find variations in Theranos' blood testing protocol to learn that they did not work as the company publicized. Tyler also states that the company subjected the validation team under “‘repeat and delete’ methodology” (Primeaux, 2019), to fix variation outcomes following discrepancies in Edison’s equipment. Therefore, most nonmanagers dealing with validating the equipment knew that the blood testing protocol at Theranos did not work, although they did not speak up.
One barrier to whistleblowing and that made other nonmanagers fail to speak up about Theranos' fraud is fear of retaliation from the company. The staff knew that any alarm to the public would make them lose their employment and would suffer punishments from the employer. According to Primeaux (2019), Tyler's failure to “supply the company's name or the tests” to the New York State Department of Health revealed his fear that there would be retaliation if the employer knew about it. As a result, other nonmanagers who knew about the fraud failed to speak up to protect their jobs and avoid other punishments.
Another barrier to whistleblowing and that made other nonmanagers fail to speak up about Theranos' fraud is the fear of legal battles following “the nondisclosure and confidentiality agreements” they sign with the company (Primeaux, 2019). Companies use such contract regulations to impact fear and reduce the chances of their employees playing a whistleblowing role. Tyler was in a similar challenge but overcome it due to the realization that his role was not only a service to the public but to the community as a whole. Employees need to realize that such fraud to the public is unlawful and immoral. They should expose such fraudulent acts to uphold society values. Giving fraud information to the OSH does not amount not violated nondisclosure and confidentiality agreements. In addition, the Occupational Safety & Health Act (OSH Act) enforces protection for employers suffering retaliation against employees following exposure of such misleading from organizations. Therefore, there is no need to fear whistleblowing following state protection and responsibility to ensure community safety.
4. In light of the Theranos experience and current legal situation, how would you structure a new company you are beginning to develop in pursuing a technical breakthrough?
Following Theranos' experience and current legal situation, truthfulness, transparency, and employee involvement as significant stakeholders would be the structure of a new company pursuing a technical breakthrough. Theranos' whistleblowing case reveals that companies cannot thrive and develop under fraud, separation, threats, and secrecy against employees. Holmes has lost the company following many legal battles and the withdrawal of investors. According to the United States Department of Justice (n.d.), Holmes also faces “restitution, for each count of wire fraud and each conspiracy count,” (para. 6), in the case the US v. Elizabeth Holmes, et al. All such losses have blocked the company and its owner from perusing a technical breakthrough in medical technology which Holmes dreamt following fraud and related whistleblowing. Although a company might hide unethical and illegal practices through nontransparent means and employee segregation, some workers will be pressured to save the public through whistleblowing. Companies cannot hide everything from employees. A technical breakthrough is only possible through transparency to avoid losing the company to fraud legal battles through whistleblowers.
Unlike before, and according to Kaiser (2019), whistleblowing is now considered an effective institution in the United States with recovered billions from misleading companies. However, the institution is leaving companies unable to proceed with their development, such as medical technology in Theranos, due to lost goodwill. Involving employees in all development processes can help overcome fraud through innovations to meet organization goals. For example, Tyler had the knowledge and skills to help Theranos meet its objectives on blond testing equipment. According to Cohn & Khorram (2021), “for Holmes, she herself represented the company,” to the extent that Tyler could not help correct irregularities to work without fraud leading to whistleblowing. As a result, I would involve employees in my technical visions to have a breakthrough without fraud through their innovative skills.
5. How will your knowledge of Tyler's story affect the way you would act if you should find yourself in a whistleblowing situation in the future?
Tyler's story impacts a responsibility for the public in my position as an employee to expose fraud in a whistleblowing situation without hesitation or fear. The drive to whistleblowing, as Tyler narrates, came from the fear that patients' lives were in danger that “started to eat me up inside” (Jarvis et al., 2019). Tyler demonstrates the risk that Theranos posed to public health and investments. The decision to quit employment and face retaliation implies significant pressure to serve the public. I have realized that whistleblowing is connected to employee ethical practice since it maximizes public good through safety. Tyler exposed the many people which Theranos had corned and the lives it had put at risk. A whistleblower has approval from the public despite going against company rules to maintain confidentiality. The knowledge about such responsibility has made me realize my other role as an employee and heightened my confidence to report fraud to the public.
In the future, I would not take much time or fear retaliation since whistleblowing is a public service role that the government recognizes and protects. I would report the case to the US department of labor and help with investigations while serving as a witness. Through Tyler's case, I have learned “that any information you bring to the attention of SEC or the government is strictly confidential” (Primeaux, 2019). A company cannot sue me if I inform the government about such misleading information. Unlike Tyler, I would not hide my identity or company name but report the case to the OSH before making it public through the media. As a result, I am more confident to learn that fraud is an unethical and illegal practice, and the law protects whistleblowing in such cases. As a result, I would be quicker and more direct to report fraud to the government in the future.
Corporate Governance Questions
6. How involved was the board of directors in Theranos' operation? Were they more involved than perfunctory meeting attendance?
Theranos' board of directors was more involved than perfunctory meeting attendants but as celebrities to market and security to legitimize the fraudulent company. The list had “an unusual roster of names for a healthcare startup, with leaders who had more experience in politics than healthcare” (Ramsey, 2019). Among the directors was George Shultz, former US secretary of state, who helped Holmes attract other decorative members with a history of government and political positions. The board lacked the health and scientific knowledge needed to develop Theranos' blood testing technology and youthful people who would influence innovations. Such a bord could not be involved in company operations such as demanding accountability, developing policies, and providing direction. Holmes was the decision-maker in the board, and the whole organization was full of secrecy as the directors described her significance. The directors viewed Holmes as a creature out of the ordinary who is able to change the world (Ramsey, 2019). According to Jones (2017), Holmes had “more power to control the board of directors”. Such description shows that other directors did not have operational roles within the company.
The board was involved in attracting investors and finances by showing that the company was in good leadership and trustworthy people in achieving growth and development in laboratory technologies. Holmes had an idea but no finances at the beginning. The company raised more finances after the board's constitution, implying the significance of people with political status and notable profiles in attracting investors. The board also provided security to legitimize the unqualified equipment and company. Despite unworking equipment, “the FDA ratified the company's blood tests” (Ramsey, 2019). Such approval shows corrupted favor which was only possible through such notable persons on the board to legitimize the company.
7. What relationship should the Theranos executive and managers have assumed related to the board of director's members? Is management employed to run the business or to run the business with some relationship to the board?
Managers and executives have a symbiotic relationship with the board of directors, which those at Theranos could have assumed. At Theranos, “the board did not really have any power” to reach out to the managers and get information about the working of the devices (Markkula Center for Applied Ethics, 2019, 18:10). Holmes had ensured that the board could only provide rigorous work and impact pressure on the management to quantity labor. Holmes, who was the whole board controlling all members, “did not listen to everything” the managers and other workers had to say (Markkula Center for Applied Ethics, 2019, 18:55). At one time, Holmes laid off the chief financial officer who attempted to advise her in the board member's capacity, revealing a broken relationship between the board members and executives. Such a non-beneficial relationship did not support the role of the board to ensure the company's vision.
Organization management is supposed to run the business with some relationship to the board. The management requires “people who believe in you” and backing the board's vision (ColdFusion, 2019, 8.10 min). Executives' and managers' roles differ from board members, but all contribute to organizational success. Such difference in functions creates the need for a mutually beneficial connection. Managers depend on the board for organizational structure and vision, which they impart to other workers. The board represents shareholder's interests to ensure public accountability. At Theranos, for example, Tyler describes a response from Holmes about accuracy where she said that “I don't think we have ever claimed that we are more accurate” (Markkula Center for Applied Ethics, 2019, 7:38). Holmes acted on the capacity of all board members to regulate work Tyler's work to hold to the structures and vision of lying about the technical efficiency. The relationship demonstrates that the management does not act independently but depends on the board where it draws its mandate of implementing the organization's vision and structure.
8. What is the difference between leadership and management? Should the hired executive and managers be setting policy, or is that the board's role? How much involvement should the board have in the organization's operations?
While organization managers and executives are supposed to manage people and operations, the board of directors is supposed to lead. Leadership and management vary in the ways people control followers and workers. Management involves control over a group of workers or people to achieve set goals. Managers use incentives, including rewards and punishment and rules to ensure that workers fit in a predefined work structure and purpose. On the other hand, leadership refers to guiding people towards organizational success through influence and motivation. “Leadership is essentially interactive in nature” (Baron & Agustina, 2017, p. 8), and leaders influence followers to adopt their vision and practices, contributing to the set goals. Such power does not exist in management, where bosses report and dictate work to followers. There is more freedom in leadership where leaders inspire others to decide on owning a vision. Managers plan work without involving workers and giving directions to fit in the plans.
The board is responsible for developing organizational policies while managers implement them through employee supervision. Managers are not supposed to create policies because they are not aware of shareholder's visions for the company. The board helps separate ownership and control while ensuring the owner's goals within the organization. Board members connect with shareholders where some of them are owners. For example, Holmes was a board member and a shareholder. Her role was to ensure that the organization focuses on high-level laboratory technology for blood testing and remains secretive. Other board members lac relationship with company ownership enabling nonpartisan policies. Managers and executives lack contact with shareholders and cannot develop appropriate policies that meet the owner's interests.
The board should be involved in hands-on work for small organizations and play primary policy-making roles in large companies. Organizations such as Theranos, at their initial stages, lack expertise and funding to separate ownership and management. Such involvement of some of the shareholders in management, for example, Holmes, creates the need for operation management to ensure noninterference with organizational goals. At Theranos, the board was less involved in operations leaving Holmes to interfere with company interests. Such starting companies can solve fraud issues such as the ones at Theranos through board involvement in daily operations to the level of manageress.
9. How would you structure a board of directors and hired executive(s) to reduce the likelihood of issues like those at Theranos?
An organization can avoid issues such as the ones Theranos experienced through appropriate board and executive structures. Theranos experienced problems such as fraud, lack of a definite vision, limited power within the board of directors to make policies, and broken relationship between the board and managers. An organization should make the board of directors present by giving them power over managers and company policies to avoid such issues. At Theranos, Holmes had all the power. An influential board of directors is essential to oversee that the company serves the right interests. Through the diversity of membership, the board is accurate in ensuring adherence to a vision. Although Holmes had a vision for the company, the board did not have the power to develop the appropriate policies and check the achievement of the set goals. As a result, the board should have powers over the executive to establish structures and oversee company vision to avoid personal interests which affect company vision and influence illegal practices.
Another way to structure a board of directors and hired executives to avoid Theranos' issues is to include qualified members instead of friends. Theranos influenced a powerless board through “founder friendly-financing” (Jones, 2017, p.167), that limited oversight from investors. The board did not have powers since they were supposed to support an individual's vision and provide security and legitimacy to the company. In addition, none of the members had a background in medical technology to question policies and structures. A company can develop a powerful board when member selection is on merit to provide oversight and hold different opinions. Such a board with experienced, skilled, and knowledgeable persons can question processes, organizational structures, and policies while ensuring a shared vision. Thus, a proper board structure to avoid Theranos' issues is one where member selection is on merit other than friendship.
10. To what extent is it a conflict of interest for early-stage investors to sit on start-up corporate boards?
Early-stage investors have a high-level conflict of interest while serving in start-up corporate boards because they have their original visions and those of other investors to serve. At Theranos, for instance, Holmes's vision and goal were to make a lot of money and fame. The board described Holmes as “a revolutionary in the truest sense” (Ramsey, 2019). Such description contradicts the reality where the company technology did not revolutionize blood testing methods and laboratories. Other investors, such as laboratories, had a vision of a revolutionary technology that would influence high income and efficiency in blood testing. Early-stage investors’ actions are such that they want to maintain control to force their goals which contradict those of incoming owners. Start-up companies have stumbled seriously due to founder misconduct. As a result, the existence of two opposing visions among early-stage investors creates a significant conflict of interest in corporate boards since board members oppose one of the goals.
Another proof of high-level conflict of interest for early-stage investors in the board is their position against other members. Founders have a close relationship with other board members based on their impact on selection. At Theranos, “Elizabeth had the board on her fingers” because they were all friends with no qualifications of being members (ColdFusion, 2019, 7:50). Such a non-official relationship provides early-stage investors power and opportunities to force their agendas, which contradicts those of a company. The investors also get a chance to bypass stakeholder's loyalty because they can manipulate the board and avoid reporting. Founders are always reluctant to let the powers go to other people and align their original visions with those of the incoming shareholders. The ability to command and manipulate the board following a friendly relationship increases the conflict of personal vision with an organization. Thus, early-stage investors have a high conflict of interest due to weaknesses in the board's power to check their work, allowing personal goals. References
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